Forward Commitment Procurement Know How Programme Part 1

1. Forward Commitment Procurement Know How Programme Part 1 Introduction to Innovation and Forward Commitment Procurement KHP 1B : FCP principles into practice These materials remain the property of BIS. They constitute part of a ‘learning by doing’ programme and are unsuitable for stand alone use. They must not be used or passed to other individuals or organisations without the express and written permission of BIS

2. Forward Commitment Procurement Know How Programme Part 1 Part 1: Introduction to Innovation and Forward Commitment Procurement By the end of this section you will be able to explain the rationale of FCP and outline the FCP process. Overview • KHP 1A: Innovation and FCP: Introduction, concepts and background. • KHP 1B : FCP principles into practice. • KHP 1C : FCP process: overview. Activities and resources • Work through the key points • Read the case study • Complete the review exercises and submit the worksheet • Review and coaching session

3. Know How Programme Part 1Part 1B Contents KHP 1B FCP principles into practice This module will cover: • Principles of FCP (recap). • The FCP process: an overview. • FCP Demonstration Project: HMPS Zero Waste Mattress solution. • By the end of this module you will be able to describe the FCP process and explain how it works.

4. Principles of Forward Commitment Procurement (FCP) • FCP provides a process by which public sector organisations can intervene to overcome market failures, and deliver benefits both for the contracting authority and society as a whole, simply by changing the way it goes about procuring goods and services. • It is a supply chain management process that creates the market conditions that pull forward innovative solutions, helps to manage the technology and other risks, and stimulates competition in the supply chain to push the boundaries of current products and services. • The corner stones of the FCP approach are: • Recognising unmet needs and future needs. • Providing demand pull for new products and services. • Making a forward commitment to procure a solution that meets the requirements. • Buying the solution when it becomes available.

5. The FCP ProcessOverview The FCP process involves: • Identifying your future needs in advance. • Expressing your requirement in outcome terms so as not to preclude innovative and new approaches to meeting your needs. • Communicating your requirement to the market in the context of a real procurement opportunity. • Stimulating and helping the supply chain to make new connections and relationships via a range of supply chain engagement processes. • Incentivising the supply chain, for example by providing information about and access to a wider market and the offer of a forward commitment. • Demonstrating you are a serious and credible procurer. “To use FCP as a tool you need to know what you want to achieve, be committed to achieving it and be able to convince the market that you really want it.” Jack Frost, EIAG Chairman

6. The FCP ProcessBased on procurement best practice • It builds upon and makes practical the guidance issued in “Capturing Innovation”. • This guidance stressed the vital role that public procurement can play as a lever for stimulating and enabling supplier innovation. • The guidance outlined innovation ‘best practice’ and was starting point for the development of the FCP approach. • The FCP approach develops and makes practical this guidance. “Achieving the benefits of innovation calls for effective leadership and a professional approach to procurement and project management.” Capturing Innovation

7. FCP was recommended by the UK Sustainable Procurement Task Force and the Commission on Environmental Markets and Economic Performance (CEMEP). These reports CEMEP recommended the wider use of FCP to unlock private sector investment in innovative environmental solutions. The Government response to these expert reports (‘Sustainable Procurement Action Plan’ and ‘Building a low carbon economy: unlocking innovation and skills’), committed Government to scale up and replicate the FCP approach and build capacity in the use of FCP in the public sector. FCP was identified as best practice in 'Finding and Procuring Innovative Solutions’. FCP was endorsed by HM Treasury in the publication ‘Transforming Public Procurement’. Most recently highlighted as an effective demand side tool in the UK Low Carbon Industrial Strategy (July 09). The FCP ProcessRecognition and endorsement

8. ReadingBackground 1. Capturing Innovation http://webarchive.nationalarchives.gov.uk/20110822131357/http://www.ogc.gov.uk Read leaflet Print and keep 2. CEMEP Report http://www.defra.gov.uk/environment/business/innovation/commission/pdf/cemep-report.pdf Read pages 41 - 47 Print and keep Optional – read executive summary

9. The FCP ProcessHMPS FCP demonstration project • The first FCP demonstration project addressed a problem that HM Prison Service (HMPS) had been trying to solve for a number of years. • Each year HM Prisons were throwing way in the order of 60,000 foam mattresses and pillows. • The majority were sent to landfill and some were disposed of as clinical waste. • This was out of step with Government sustainability aspirations and targets (Sustainability on the Government Estate - SOGE), and clinical waste disposal is costly. • Previous attempts to solve the problem had been unsuccessful. “The combined cost of mattress and pillow supply and disposal is estimated to be well in excess of £3 million per year. In short, the current solution is costly and environmentally unsustainable”. HMPS FCP Market Communication Document

10. The FCP ProcessHMPS FCP demonstration project FCP Process Step 1: Recognise that you have a problem now or will have a problem in the future. • The problem = 40,000 mattresses and pillows thrown away per year and either land filled or treated as clinical waste. Cost over £3 million pa. No recyclable product available in the market. • This used to be acceptable but SOGE (Sustainable Operations on the Government Estate) targets made it visible as unsustainable practice and a problem. • HMPS were aware of the problem and had tried a number of solutions, all of which were too costly, impractical or didn’t work. “We usually fail to think ahead and anticipate unmet needs; and when we are forced to face up to a problem, it is usually too late to stimulate innovative solutions, leading to compromise, and ineffective or costly solutions – landfill did not just suddenly disappear overnight yet we failed to do anything about it, and now have limited options ” Gaynor Whyles, BIS FCP Programme Manager, JERA Consulting

11. The FCP ProcessHMPS FCP demonstration project FCP Process Step 2: Unpack and articulate the requirement as an outcome based specification • By looking beyond what they believed was deliverable, and focussing on the outcome that they were looking to achieve, HMPS and the FCP Project Team came up with the following requirement: • (It took a few attempts – this is often harder than it sounds) • “HMPS aspires to a zero waste prison mattress system that meets or exceeds current operational requirements and delivers whole life cycle cost efficiencies. • By 2012, HMPS wants all its mattresses and pillows not classified as hazardous waste to be recycled, repurposed or reused instead of going to landfill; and to reduce to 2 per cent pa the number of mattresses disposed of as hazardous or clinical waste”. • Costs not to exceed current costs of supply and disposal. • Pie in the sky?

12. The FCP ProcessHMPS FCP demonstration project FCP Process Step 3: Make the unmet need visible to the market. • To facilitate communication with the supply chain, HMPS and the FCP Team put together: • a Market Sounding Prospectus that set out (and helped to define) the requirement, and gave context and background information, and • a Response Form, designed to help standardise the responses • These were put on the HMPS website. • A communication plan was developed using intermediary organisations to get the message out to the market place, and make sure the supply chain knew about the HMPS requirement and the opportunity to provide feedback via the Market Sounding exercise. • HMPS issued a ‘Call for innovative solutions and information’, and implemented their communication plan. • The call was ‘launched’ with a Prior Information Notice (PIN) published in the OJEU (Official Journal of the European Union). “There are many ‘myths’ about supplier engagement, and many procurers avoid talking to suppliers because they are worried about stepping outside legal boundaries. The FCP Process was developed to make sure the process is fully in line with Public Procurement Regulations . ” Gaynor Whyles, EIAG FCP Project Manager and BIS FCP Programme Manager, JERA Consulting

13. HMPS Zero Waste Mattress DemonstrationThe Response to Marketing Sounding • 36 high quality responses were received ranging from international companies to social enterprises, innovative technical and commercial solutions. • To facilitate supply chain development and enable connections and collaborations, information and contact details about the companies that responded were published in a Company Directory and this was placed on the HMPS website. • The responses from the supply chain were reviewed and the key findings summarised in a Market Sounding report. • The Market Sounding process opened up the market to new suppliers and new supply chain connections were made. • The call stimulated and interested the supply chain. • The Materials Knowledge Transfer Network (KTN) organised a supply chain workshop to discuss potential solutions with leading experts in materials and design.

14. HMPS Zero Waste Mattress Demonstration ProjectResponse to Marketing Sounding HEIs 36 responses, across the full range of the potential supply chain Innovators Research Institutes Consultancies International companies HMPS Partnerships and consortia SMEs Social enterprise Micro Companies

15. The FCP ProcessHMPS FCP demonstration project FCP Process Step 4: Develop a procurement strategy and specification to support innovation in the supply chain and delivery of the outcomes. • A supply chain workshop was organised to discuss procurement options with a cross section of the companies that responded. • A briefing paper was sent out in advance of the workshop, explaining the purpose of the workshop and giving advance notice of the questions HMPS wanted to discuss. • The supply chain provided valuable feedback, advice and suggestions. • A new procurement approach was agreed: instead of buying a mattress based on a 26 page technical specification, HMPS specified a ‘whole life cycle zero waste mattress managed service’. “The response [of the supply chain] has been excellent and has confirmed the value of this novel approach” Geoff Sykes, Head of National Procurement, Ministry of Justice

16. The FCP ProcessHMPS FCP demonstration project FCP Process Step 5: Call for tender and Procurement • An outcome based specification was the basis for the call for tender. • Evaluation criteria were discussed carefully. • The FCP Team advised HMPS to use the competitive dialogue process as this would enable them to further explore options with the supply chain and evolve the most appropriate evaluation criteria. • However, HMPS were so encouraged by the market consultation and the response of the supply chain that they adopted a restricted tender approach. • 5 good quality responses to the invitation to tender were received.

17. The FCP ProcessHMPS FCP demonstration project FCP Process Step 6: Forward Commitment Contract? • HMPS offered a forward commitment, should it be necessary, in the Market Sounding Prospectus: • “Moving towards our 2012 goal will no doubt involve sequential change and incremental improvements in both technical and commercial innovation and may well involve the need for products and services that are not established in the market or in commercial production. • It is in this context that, in planning its future procurement strategy, HMPS would consider facilitating the take up of innovative and pre-commercial technologies and approaches through a forward commitment to purchase products and services that are near market and not yet in commercial production or commercially available, subject to agreed performance targets being met”. • In this case a forward commitment contract was not needed, suppliers funded their own development because of competition and the confidence that the FCP process had already provided that the Prison Service was serious in its intention to buy a zero waste solution.

18. The FCP ProcessHMPS FCP demonstration project The Outcome? • A zero waste mattress managed service in place, saving in excess of £4.5 million over the life of the contract, where no such option existed before the procurement exercise, ahead of the 2012 target set in the original call for innovation. • No more mattresses sent to landfill and significant reduction in clinical waste. • The contract will now be managed in a progressive way – with improvements built in and expectations for the next contract are even higher. Learning: • With hindsight, HMPS agreed that competitive dialogue would have enabled them to deliver an even better solution this time round. “Procurement has been talked about for years as a tool for sustainability, but the HMPS zero waste mattress project was one of the few truly innovative examples that CEMEP came across” Julie Hill, Member of the Commission on Environmental Markets and Economic Performance and Associate of Green Alliance

19. HMPS FCP demonstration projectWhy didn’t it happen before? • What is perhaps surprising is that (this time round) the contract was awarded to the incumbent supplier. • The security issues around prison mattresses are considerable, and any new mattress would need to be fully tested and approved from a security and fire risk point of view. • There was insufficient time to achieve a high level of change first time round, due more to the limitations within HMPS than the supply chain, although HMPS now report that the relationship between the procurement team and security teams and better than they have ever been as a result of engagement in this project. • But the main reason it didn’t happen before? • HMPS failed to ask for it. “FCP involves being a demanding procurer, asking for what you want, not what you think you can get, and actively creating the market conditions that stimulate and enable to supply chain to deliver.” Gaynor Whyles, BIS FCP Programme Manager, JERA consulting

20. HMPS FCP demonstration projectSuccess Factors? • HMPS had a genuine unmet need: • current practice could not continue; • a problem that they had to solve; • they had (SOGE) targets to meet brought which brought the unmet need into focus. • HMPS engaged with the supply chain on the basis of a real procurement in a specified timeframe. • There was sufficient time for the supply chain to respond and innovate. • HMPS began to look at this in the summer of 2006, the market sounding call was issued in November 2006, the contract was awarded in March 2009, they set what they felt was a realistic timeframe of 2012 to deliver the required outcomes, and a second round of procurement if required, to allow time for innovation. In the end the supply chain was able to deliver ahead of this date. • Leadership and commitment • the project was managed by the Head of Corporate Procurement; • with the backing of the Commercial Director.

21. SummaryFCP Process: Key Features • A practical supply chain management tool • staged process of supply chain management • “credible, articulated demand” • Stimulates innovation in response to customer unmet needs • works with real and specific procurement opportunities • FCP projects require that you buy something • …if it meets the requirements you have articulated) • creates the missing ‘market pull’ • provides a framework for the supply chain to engage and influence the procurement process • Manages innovation risk • transfers risk to those best able to deal with it, i.e. • customers handle market risk (by telling the supply chain what you, the customer, wants, when, and indicates value placed on delivery) • suppliers manages technology risk (they work out if and how they can deliver the outcome and if they are prepared to invest on the basis of the demand) • together address barriers to deliver

22. SummaryFCP works best…. • Where there is: • a high level of leadership and staff commitment • full integration of the project in the organisation • a genuine unmet need • that current technology, products or commercial models cannot deliver • and / or cannot be delivered affordably • don’t innovate unless you have to……… • a credible procurement opportunity exists – or can be created • with a reasonable lead time • of sufficient scale to stimulate the delivery of a solution • presented in a way that demonstrates a genuine commitment to procuring a solution • the ability to make a forward commitment of sufficient strength to generate the required market pull • potential for replication and aggregation of demand within the organisation, region, and with other public sector bodies • routes to the wider public sector market

23. In the resource section of the website you will find the following reading material - HMPS Case Study - Article from Green Alliance Inside Track magazine, Autumn 2007 - FCP Summary Read the articles, make notes, print and keep ReadingFCP and HMPS Demonstration project